All Major Components Dropped at Year End; Rental Housing, Warehouse, Hospital and Factory Construction Show Best Prospects for Improvement, While Schools and Other Public Construction May Shrink Further

Construction spending tumbled 2.5 percent in December to a $788 billion seasonally adjusted annual rate, the lowest level in a decade, the Associated General Contractors of America noted today in an analysis of new Census Bureau data. All three major components - private residential, private nonresidential and public construction - shared in the decline.

"These dismal results - coming just days after another government agency reported the overall economy grew for the sixth quarter in a row - show that the agony of the recession continues for millions of construction workers and their firms," said Ken Simonson, the association's chief economist. "Construction spending fell again in the last two months of 2010, and the preliminary total for the year was the lowest since 2000."

Simonson noted that there were a few bright spots. Power construction climbed for the fifth straight month and finished the year 13 percent higher than in December 2009, due to a mix of oil and gas-fired power plants, renewable power projects such as solar and wind generation, and transmission lines - all of which Simonson said he expects will continue strongly in 2011. Highway and street construction slipped 1.6 percent in December but was 7.6 percent of the year-earlier level. Spending on transportation facilities, such as truck terminals, airports and transit projects, was up slightly from November and from year-ago levels.

"The outlook for 2011 is very mixed," Simonson commented. "Spending on rental housing, warehouses, hospitals and factories should pick up. Power construction should stay strong, and federal dollars for stimulus and base realignment or 'BRAC' projects will continue to sustain some contractors. But public school construction and other state and local projects will keep shrinking, while single-family homebuilding, retail and office construction are likely to remain feeble."

Contractors themselves also have mixed views, according to a recent survey sponsored by AGC and Navigant Consulting. On balance, more firms expect to hire workers than to shrink in 2011 - by a 27 to 20 percent margin, but only 16 percent of the 1277 respondents said they thought the overall construction market would pick up in 2011. Nearly half - 48 percent thought the turnaround would occur in 2012, with 36 percent saying it would be even later.